Hurricane Gustav is on its way. Damage to oil and gas infrastructure from this event is looking more and more likely on current track. Here are the latest damage graphs and updates from KAC/UCF. Update from Chuck Watson 9:24 EST (Next update Saturday 8/30)

Continuing westward shift: this based on the BAMD model, which is doing as well as the more sophisticated runs and is a lot faster (this run based the 8pm position and intensity estimates, so it's almost real time as opposed to waiting 3-4 hrs for GFDL or HWRF).

"This from the latest damage run based on the HWRF model. Note how the storm stalls out after landfall as a tropical storm. Bad news for recovery, especially if wet. This scenarios results in a loss of nearly 50% of the GOM production/processing capacity for the rest of the year. Ouch." (Note: this analysis on oil/gas damage is based on HWRF run verifying)

Though the Methaz runs based on HWRF model are among the most eastward of the ensemble models,(Chuck has been east of consensus since storm begain) the damage using the current official 5 pm NHC path is just as bad. It shows a bit more production loss (about 60% of the rest of the year), plus about a month down time for the LOOP and inland pipeline damage.

Damage run based on latest official forecast

Click to go to WUnderground

Latest updates from Chuck Watson:
(3:34 pm 8/29)

Unfortunately it seems the favorable options for this storm are dropping off one by one. I think we're seeing a trend in the dynamic models towards the central LA coast and into a "target rich" environment with respect to oil production, as a strong enough storm to cause significant damage. Our in-house models are now showing a 50% chance of long term (more than 10% production loss for more than 30 days) damage from this storm. The GFDL scenario, for example, whacks the LOOP pretty hard.

Keep in mind that this storm is still not a hurricane (although it may well be any time now)(*Ed note, it is now a hurricane), and while the track models have been fairly consistent, intensity forecasts are a very tricky business. There are still some big unknowns with respect to shear the day or so before landfall. A small change in wind speed (10 knots) can make a big difference in damage since damage is proportional to the cube of the wind speed. So a 110 knot storm might cause 10% damage, but a 120 knots storm would cause 15% to the same structure.

(8:35 am 8/29)

Gustav is a bit better organized this morning, and continuing to slowly drift westward, but there are signs the turn to the northwest has started. But the track across the GOM oil/gas lease sites and potential impact on refineries is still very much an open question. We're pretty
sure it will turn north-northwest, and move across western Cuba or the Yucatan straits. The key question is the timing of the interaction with a high pressure system that could cause a sharp left (west) turn is unknown. That will also increase shear and weaken the storm, so it could well be the difference between this being a major disruption and a no-big-deal event depending on when the shear and turn kick in. To repeat myself, we'll know more when Gustav clears the Yucatan straits, which is looking like tomorrow evening.

Chuck has put together a dynamically updating page that will reflect the latest damage models/forecasts at this link: KAC/UCF models.

On current track, which the weather geeks (and I use the term "geek" in kinship...) at http://easternuswx.com and Jeff Masters at WU say is too early to say for sure, but this could do a lot of damage.
Very high SSTs in Caribbean:UPDATED

Just to give you a rough idea of where things are, the map above is a probability swath for Katrina (OLD TRACK MAP!) with the Thunder Horse platform as the red dot, and the other purple dot represents the Mad Dog development (100,000 bd); the Holstein development that produces at peak, around 100,000 bd of oil; and the Atlantis field that may have ramped up to around 200,000 bd in all. Put together these projects have the potential of around 650,000 bd, but as can be seen, they were sitting in an uncomfortable spot relative to the track of the Katrina.The white dot is where Port Fourchon is. This is where the Louisiana Offshore Oil Port, or LOOP, is located. Rigzone pointed out that this is where the foreign tankers offload, Google and Terraserve maps you can see that the area is very low-lying. One of the big concerns is that there will be sub-sea landslides or other ground movement that might affect the LOOP. Were this to be disrupted, then foreign tankers would need to be diverted elsewhere, with the likely port being Houston.

(Please deposit new relevant links, graphs, and comments in this new thread...we have updated the resources part of this post with new maps and some more old maps and articles from Katrina on the LOOP and Port Fourchon--important parts of the infrastructure, as we learned about three years ago. We will start a third thread when we get new info or Sat am)

As far as New Orleans, due to the counterclockwise rotation of the storm, as the storm approaches land, (under the current model) the wind will come from the east, straight into the mouth of the river.

If the cooler air (which is north and west of the big T-storms in the midwest) gets to the gulf coast before Gustav (which is off the map @ the lower right-hand corner), then that hurricane will likely drift to the west. The gulf energy platforms will be in Gustav's powerful North-East quadrant, but the shear would limit Gustav's intensity.

Hanna could turn more directly westward toward Florida. If there is an infill of cooler air, then the storm tracks would diverge, with Gustav tracking toward Texas then turning north over the plains and Hanna tracking west then turning north, perhaps moving out to sea without making landfall.

Quoting SavannahStorm:
"I've just realized that Hanna Montana is gonna be a BIG storm. All that convection right now is just half of the system. The whole western half of Hanna is being sheared off by that ULL. By determining her circulation on visible sat, once the ULL dissipates, we could be looking at a storm that spans 9 degrees of longitude. That's over 520 miles across! Not Tip-sized huge, but still a big girl."

Tropical Storm Gustav hasn't deviated from its "very ominous" track toward the U.S. coast of the Gulf of Mexico, and is likely to strengthen into a major hurricane before making landfall, a private forecaster said Thursday.

"This storm remains likely to explode into a major hurricane as it moves across the northwestern Caribbean and into the Gulf over the weekend," said Jim Rouiller, a senior energy meteorologist with weather forecasting firm Planalytics.

The International Energy Agency IEA is ready to release strategic oil stocks if Tropical Storm Gustav hits the Gulf of Mexico oil hub early next week, the energy adviser to 27 rich nations said on Thursday.

Shell safely evacuated almost 400 people from its Gulf of Mexico operations on August 26, 2008. The Company anticipates bringing approximately 270 personnel to shore Thursday.

Shell expects to evacuate the remaining 600 personnel on Friday and Saturday, and is working toward a full evacuation of Shell-operated assets in the Gulf, based on predictions that Tropical Storm Gustav will strengthen again into a hurricane and cross the Gulf of Mexico this weekend.

ConocoPhillips has continued to monitor the progress of Tropical Storm Gustav. It is projected to enter the Gulf of Mexico Sunday with landfall expected sometime late Monday or early Tuesday.

Based on the projected path and speed of the storm, ConocoPhillips will implement inclement weather contingency plans which include the removal of non-essential personnel from the Magnolia platform in the central Gulf of Mexico beginning on Thursday, August 28, 2008.

The IEA doesn't own any oil inventory itself. It's just an advisor to nations that do have such.

This is incorrect. IEA is an implementing arm of a treaty to which the US is a signatory. Every member nation pledged their Strategic Petroleum Reserve to IEA management of 7-12% shortfall. Measured by Net Oil Exports, we current have a 5.3% shortfall from the 2005 peak.

When Gustav hits we are likely to see an inventory crisis that exceeds the trigger (watch the TWIP report). The IEA committed treaty resources in response to Katrina. Following is a graphic shows what will happen if a Katrina level inventory event happens to current depressed Gulf imports.

Thanks Bill.
That graph is good, but not exactly accurate, because this week should fall exactly under the 2005 drop from Katrina. So what this says is that refineries were out and we couldn't process the crude AND prices went up and met with demand destruction? If we receive IEA 'oil', would that count as an import?

I agree it is not accurate, just an approximate illustration. I have no idea what will actually happen. But an inventory shortfall of a million barrels a day will drop inventories below historical operating levels (blue band).

If inventories drop very far then, my guess is pricing will increase substantially and there will be outages. I believe IEA will help. But shipments of oil from the US Gulf takes a great deal less time and ships than shipments directed by the IEA.

IEA commitments will help. More and more events are adding stress to the system. Russians in Georgia, hurricanes, field depletions, etc... are mounting. Systems under enough stress shred.

I also did not mean to imply that the IEA 'owns' oil. It does command the national reserve of members by force of treaty. I have been doing a lot of studying about contingency plans and will send you a summary soon. As examples Utah's, California's and Ireland's plans were written to be in compliance with the IEA treaty obligations.

Yes
please send that - it might be a good guest post
If i recall, the US opted out of the IEA shortfall contract, saying that our economy was 'too sensitive' and that our SPR had double what most countries do. But the other member countries, in case of a 5% shortfall (IIRC), have mandatory 10pm curfews, odd even liscence plate driving days, etc....(guess my next vehicle should have an 'even' end number...;-)

New Zealand does not have any reserve, AFAIK our commitment to the IEA is met via insurance. The contracts require release of reserves in Japan and the UK, of course if defaulting is more profitable than honoring contracts we are screwed

I'd guess that revised GDP numbers seem more important to investors in the medium term than Oil. Optimism moving out of hedges. Don't see wide swings either way until after the election. Volitility yes.

It's the IEA announcement, but I don't think most of the market was much surprised by that. Open interest has been steadily falling--meaning people have been getting out of positions both ways. In other words, nobody's been going long because of this hurricane--shorts have been closing out positions, but longs have been using the price rise to get out of longs as well.

What the market is really doing is slowly assessing the chances of long-term effects on supply.

It's also probably a reaction to the coming long holiday weekend in the States. Most of Wall Street is heading to the beaches today (if they aren't already there). The next two days will probably have very low volume (which can lead to large swings in prices).

As someone else stated, many traders have probably exited their positions for the weekend.

What a joke, it's the shorts that should be covering like crazy not so much the longs, such a large drop in a few minutes show that the PPT is bashing the price big time while at the same time shoring up the Dow and other indices, what a joke, so much for free markets in this country..

I think there might also be an element of funds and prop desks closing out winning bets on financial stocks (shorts) and locking in gains before month-end in addition to what Moe just mentioned. As stated before, there's gonna be no volume tomorrow since it's a half day and most people are out anyway, so get your trades in today. Headline numbers for GDP also look (depectively) good and remittance information on home loans and consumer credit (released on the 25th) have shown some signs of stability (still bad, but not getting worse or better).

Moe, was wondering if you had a mid-term outlook for oil. Do you think we're gonna drop lower or do you see more signs of a bottom here? What are you expecting after the OPEC meeting? Been reading your stuff for many months now and really appreciate all your ideas. Thx.

csguy, let's put it this way. I'm comfortable holding on to my long-term positions in oil, which are long. Still no buy signal since a week or so ago that I felt worthy of posting for Macduff, but I didn't see any need to post any warnings to sell either.

I don't see how you can get an edge betting on what OPEC will or won't do, and I don't even see how you can bet on the hurricane until we have more information, other than to take off any short positions.

People with long-term oil investments they're worried about should probably resign themselves to being kept in agony through the elections, unless we get a big effect from the hurricanes.

csguy, it's the elections vs. the hurricane. The hurricane is already having some impact on oil production. And there are already shortages of gasoline in Fargo, Sioux Falls and upper Minnesota. (No surprise to anyone here, after recent inventory reports.)

You might also want to think about the value of the rising dollar as you ride this out. Your investment may be diddling around in a trading range in nominal terms, but if the value of the dollar is rising, the real value of your investment is rising as well, assuming you bought in dollars.

And on gasoline supplies as well.
A local newscasters' Dad lives in Ocean City, MS.
She reported he told her that a lot of gas stations are already out, he had to drive many miles inland to get gas and inland hotel rooms are also gone.

Even here (middle of Texas), prices are starting to go up. People here are filling up to try and get one last tank of "cheap" gas, before the inevitable "gee, there's a hurricane, so prices will go up five times today" event.

Why is gas $3.19 in Houston today, and $3.69 here, 100 miles further inland?

A poster from the Florida Panhandle (at the Weather Underground weather blog) said folks are cancelling Labor Day vacation plans in a big hurry, due to the uncertainty, which is putting a damper on the local economy.

IIRC its the Met Office model that was predicting a kink to the south a few days ago. Therefore although its the GFDL model that tends to be taken most seriously, may the Met model prediction should get the nod for this one?

In other news oil drops three dollars on news of three hurricanes hitting the GOM in quick succession resulting in at the minimum production shutdown for 1-3 weeks and delays in offloading imports.

Fox and Bunny figures out whats up:

Now that all the speculators have been scared out of the market the price of oil is going down because no one is buying since they are scared they might not even have a refinery after this. So the good news is the price of gasoline should moderate so keep driving that SUV. Plus Bush promised he would release oil from the SPR we have not determined where we would refine it but Saudi Arabia said it would be ok to return it for a full refund.

Yes the weather is so much more interesting, all those wonderful dynamic graphs and charts and it is going to happen over the next few days unlike that pesky PO thing - so it doesn't tax our concentration too much. We can panic about hurricanes and be complacent about PO.

Fortunately it is happening in a strange land far far away where I have heard tales of fairies and unicorns and where they build cities below the water level.

Is this very normal, for a TS to turn south? I thought storms started off Africa and moved across the Atlantic. If they started far enough north, then they would turn north and head straight up the Atlantic toward Greenland. If they started far enough south, then they made a line toward the Gulf. In the three years since I started watching the storms via the charts, I haven't seen one turn south like this.

"About 3-4 days from now, a strong blocking ridge of high pressure is forecast by most of the models to build over Hanna, forcing it to the southwest towards the Bahamas. This is an unusual motion for a hurricane, and it would be surprise to see Hanna move as far south as some of the models are predicting--all the way into Cuba.

However, the Bahamas are at high risk from this storm 4-5 days from now. Hanna may be weakening at that time, as wind shear from an upper-level trough to the north of the storm is expected to bring 15-25 knots of shear to the storm. In the longer term, both the ECMWF and GFS models are predicting Hanna will pass through South Florida or the Florida Keys into the Gulf of Mexico by Thursday or Friday next week."

Steering currents imparted by the counterclockwise flow around the upper-level low to its west will keep Hanna moving northwest, to a point midway between Bermuda and the Bahama Islands. About 3-4 days from now, a strong blocking ridge of high pressure is forecast by most of the models to build over Hanna, forcing it to the southwest towards the Bahamas. This is an unusual motion for a hurricane, and it would be surprise to see Hanna move as far south as some of the models are predicting--all the way into Cuba. However, the Bahamas are at high risk from this storm 4-5 days from now. Hanna may be weakening at that time, as wind shear from an upper-level trough to the north of the storm is expected to bring 15-25 knots of shear to the storm. In the longer term, both the ECMWF and GFS models are predicting Hanna will pass through South Florida or the Florida Keys into the Gulf of Mexico by Thursday or Friday next week.

A major complicating factor in forecasting both Hanna's track and intensity may be the possible development of a tropical disturbance behind it, near 18N 41W (see discussion below, under "Elsewhere in the tropics". This disturbance is forecast to develop into a tropical storm 3-5 days from now by some of the models. If so, the new storm could substantially alter the path and strength of Hanna. Don't believe that Hanna will be going through South Florida quite yet; the models do very poorly with hurricane-hurricane interactions, and the long term fate of Hanna is still highly uncertain.

I have trees to cut down and stack, (new)chickens, goats and horses to feed, papers to write, basement to clean all on the weekend docket. Knowing my neural penchant for 'unexpected reward', there may be unfortuntately be a new post next week "Dammit - You Forgot to Feed the Chickens"...;-)

THE NEW ECWMF SUPPORTS RECENT MODEL INDICATIONS FROM THE GFS AND
BOTH THE 12Z GFS/ECMWF ENSEMBLE MEANS THAT THE BEGINNING OF THE
MEDIUM RANGE PERIOD WILL BECOME INCREASINGLY AMPLIFIED WITH
TROUGHS ACROSS THE WEST COAST AND OVER SOUTHEASTERN CANADA...THAT
ARE EXPECTED TO EVENTUALLY BECOME CLOSED OFF. BETWEEN THE TROUGHS
WILL BE A STRONG SUBTROPICAL RIDGE...WITH THE UPPER LOW NEAR
ARIZONA AND ASSOCIATED ABUNDANT MOISTURE LIFTING NORTHWARD. THE
00Z GFS/ECWMF ARE IN FAIRLY GOOD AGREEMENT OUT WEST BY DAYS
5/6...WITH THE MEAN TROUGH POSITION SHIFTING SLIGHTLY WESTWARD
WITH THE APPROACH OF ANOTHER SYSTEM. HOWEVER...MODEL DIFFERENCES
BECOME VERY APPARENT IN THE EAST BY THIS TIME...WITH THE ECMWF
MORE AGGRESSIVE WITH THE CLOSED LOW REMAINING NEAR THE EAST COAST.
TO CONSTRUCT THE PRELIMINARY PRESSURE/FRONTS PROGS...VARIOUS
BLENDS OF THE 00Z ECMWF AND 12Z GFS ENSEMBLE MEAN WILL PROVIDE THE
BEST COMPROMISE OF ADDRESSING THE WEST COAST TROUGH AND UPPER LOW
NEAR THE NORTHEAST.

UPDATED MORNING PRELIMS FOLLOW THE ABOVE SCEANARIO BUT INCORPORATE
THE 00Z ECMWF MEAN
INSTEAD OF THE 12Z GFS ENS MEAN. VERY LITTLE CONUS DIFFERENCE BUT
OCEANIC DIFFERENCES AGREE BETTER USING THE ECMWF ENS MEAN ESP OVER
THE PACIFIC. THE 00Z OP ECMWF IS NOT A PREFERRED MODEL OVER THE
TROPICAL ATLC AND ADJUSTMENTS WERE MADE CONCERNING T.S. HANNA NE
OF THE LEEWARD ISLANDS.

TROPICAL STORM GUSTAV STILL FORECAST TO BECOME STRONG TO MAJOR
HURRICANE THIS PERIOD. MODEL SPREAD CONTS TO THREATEN THE CENTRAL
GULF COAST AND DAYS 6 AND 7 WED/THU ARE AN EXTRAPOLATION OF THE
NHC OFFICIAL TRACK INTO THE ARKLATEX AREA DAYS 6 AND 7 WED/THU.

Did you understand a word of that? I dunno, but before I went to skool I couldn't spell enginear, and now I are one. Really, who writes these things? Is plain English an aesthetic abstraction, or are we made to suffer government double-speak?

And why do they insist on using caps!!? Hello, its the 21st century!

Nate, I really appreciate the work you and Chuck are doing. It gives credit to the Internet - this is what it was built for. But that weather description defies gravity!

The atmosphere pulled a major surprise last night and this morning, substantially altering the short and long-term fate of Tropical Storm Gustav. The ridge of high pressure that was forcing Gustav to the west shifted positions, and is now oriented southwest-to-northeast. This has pushed Gustav to the southwest, and pumped in some dry air into the northwest side of Gustav. As a result of this dry air, and the weakening of the circulation due to interaction with Haiti's mountains, Gustav was forced to form a new center under heavy thunderstorms on the its south side, away from the dry air and Haiti.

A good example of how the complex interactions of various transient atmospheric features can lead to surprises with these storms. Gustav will probably have many more surprises in store... Some may be beneficial (e.g. a perturbation that would help New Orleans stay alive), some may not.

As the lay observer living in the region for the past 10 years and now back to living in BC like Wolf, I came up with some very simple rules to predict hurricanes:

1) 3+ days out they were a best guess.

2) Once a storm hits land, throw out the track projections.

3) You can never be too prepared. (Our house is in NE Florida and we do stock up come hurricane season).

4) Hope for the best and plan for the worst.

I've been through some minor hurricanes, however my wife and family went through Andrew and they went through some of the worst. They live in the South Miami area (yes, South Miami is a separate city BTW). You don't want to go through that.

So please keep in mind as we academically analyze the potential damage that there will people living with a freight train going over their heads and possibly having everything they own and dreamed for strewn between the Gulf and Baton Rouge.

(Bloomberg) -- Oil and natural gas companies accelerated evacuations from rigs and production platforms in the Gulf of Mexico as Tropical Storm Gustav may enter the region as a hurricane this weekend.

ConocoPhillips said it stopped oil and natural-gas production at its only offshore platform in the Gulf and will begin evacuations today. Royal Dutch Shell Plc, Europe's largest oil company, said it has begun shutting its offshore oil and gas operations and plans to evacuate all offshore workers.

Gustav may halt 1.2 million barrels of a day of crude oil production and 7.2 billion cubic feet of natural gas output if it strikes the central Gulf Coast, said Angela Montoya, a meteorologist at Weather Insight LP in Houston.

Hurricane Gustav has put Republicans in a bind, since it appears it will strike as they start their convention in St. Paul.

If they carry on with the convention and ignore Gustav, they will appear callous and re-enforce the perception that grew after Bush's mishandling of Katrina. Also the convention will become second page news and a filler item on MSM as Gustav's devastation will dominate. Not only that, all eyes will be on the Republican governor of Louisiana to see how he handles himself and the situation.

If McCain cancels or postpones the convention, the carefully choreographed shindig will be thrown off stride compared to the Democrat's crowning of Obama-Biden.

They are in a no win situation if Gustav hits as forecast. Scheduling the convention on about the 3rd anniversary of Katrina looks to be a mistake that will test McCain's leadership.

Why not? For 40 years Republicans have been barraging us with the idea that the 19th Century, when the government did nothing about natural (or business-made) disasters, was Utopia. That the market would solve everything, fix everything, and give everybody what they deserved. Katrina showed us all what that actually meant for our forefathers. A sneak preview for the barbarization that is slowly crawling over our country, bankruptcy by bankruptcy, foreclosure by foreclosure, ruined sewer by ruined highway.

super-
It sounds like paradise--- Maybe a monopoly of water? Thirsty people will beg and give away everything. Sounds like the ideal ownership society. The divine right to prosperity- so what if
a few people and trees are in the way. you've sen one redwood, you've sen them all (Ron Raygun).

Surely you're not under the delusion that Democrats had nothing to do with this. The financial rules were relaxed under Clinton's watch. We haven't seen real GDP or Inflation numbers since. No signals = no action (no matter who's in charge).

(MarketWatch) -- The Republican Party may hold off on its national convention next week if Tropical Storm Gustav turns into a hurricane and strikes the Gulf Coast, a spokesman for presumptive presidential nominee John McCain said Thursday.

After the treatment Palin's selection as VP is getting I would think the Republicans might want to relocate their convention somewhere less embarrassing than the United States. I don't know who that was intended to please but it looks like they're making this the Worst. Ticket. Ever. so they can demonstrate improvement in 2012.

Everyone seems to love it. Which is rather strange. Democrats are celebrating McCain handing them the election on a platter. While Republicans think this puts a stake in the heart of the Obama campaign.

Maybe he just wanted to take the attention away from the Democratic convention. If so, he succeeded. Nowhere near this buzz over Biden.

Not gonna help, though, if the RNC has to compete with the big swirly thing for media attention...

Sarah Palin is a Dominionist. A zero in the eyes of most voters but sweet candy delight to the disloyal Christian Right. Oh, but she knows nothing, so if McCain drops dead she panders and the existing powers that be still call the shots. Just lovely ...

NEW YORK (CNNMoney.com) -- With Tropical Storm Gustav setting its sights on the Gulf of Mexico, oil facilities in the region are facing their first major threat since 2005, when Hurricanes Rita and Katrina knocked out nearly every barrel of oil production and sent prices soaring to then-record levels.

But this time around, if Gustav intensifies and heads into the Gulf as expected, experts say reinforcements have made production far less vulnerable than it was three years ago.

"Many have attributed the tipping points in the US economic and political scene to the aftermath of 2005's Katrina weather event. Questions have already emerged about the ability of the US economy to sustain a second such strike while in its currently fragile condition, albeit GDP numbers expected this morning might show a higher than 1.9% growth rate for the second quarter."

Despite some changes in the
individual model tracks...the consensus has barely budged and the
new official track forecast is very similar to the previous one.
Since track forecasts are always subject to large errors at 3-5
days...and especially given the notable model spread over the Gulf
of Mexico...it is simply impossible to determine exactly where and
when Gustav will make final landfall. In fact...taking into
account the uncertainties in track...intensity...and size
forecasts...the chances of hurricane-force winds within the next
five days are essentially the same at each individual location from
the Florida Panhandle coast westward through the entire coastline
of Louisiana.

This is definately the best oil related hurricane coverage on the web. And the posting crew here is sharp and generous. But I'm amazed at the way you guys buy into and offer fundamental explanations for the oil price sell off in the onslaught of Gustav and Hannah.

Look back at the 3 days before Katrina. We had oil prices drop over $4/barrel! Knowing what we know now, was that logical or a freely operating legitimate market.

Do you think the Open Market Commitee (Plunge Protection Crew) only operates in stock futures? Do you think gold markets are legit? Heck no. We are supposed to be a system of checks and balances but thats long gone. And if you give secret committees the power to operate with impunity, do you think they are going to be self limiting? Heck no.

They have nearly limitless funding and they can pump this liquidity into the system by a myriad of ways- not just by buying TBills. They are active in all commodity markets. And their game plan is always to pound down precious metals and pound down oil when the situation looks damaging. They did it on Katrina and they're doing it on Gustav. You watch, oil will be off more on Friday. They know that if they scortch speculators on events like Katrina or Gustav or Mideast calamities, then those evil speculators won't be bidding things up on these inflationary events. They are doing exactly what their name says they are supposed to do- Protect us from stock market plunges.

Poster's Prediction: Gustav is trouble. It'll spin into the Gulf and obtain Cat 4 status but the oil markets will sell off in advance of it making landfall just like they did b4 Katrina. It'll make no sense, but we here should all know by now that we don't have logical, freely operating markets. Once again, it'll be OMC intervention.

what you write seems so.....plausible.
I have never really believed in the PPT, but I guess in some ways it does make sense - but there still is a decent chance (e.g 50%) that gulf infrastructure is not affected other than the shut-ins, so the oil market may be acting rationally. For the oil market....

But eventually the people with the fundamentals on their side would sop up that PPT liquidity like Soros vs the BOE. E.g. if these hurricanes do produce damage, especially to the uninsured shallow shelf rigs or the refineries, natural gas and refined products prices are going up 10-20%+. Therefore I just can't believe such a plot exists. People are dumb enough in their own right to make bad investment choices in short run.

The market is up--it's been rising into a strong dollar, even with utterly demoralized bulls. And the squeezeable shorts have already been squeezed out--look at a chart for last Thursday.

The IEA took the rewards off the table for a short-term storm bet. So, we're back to fundamentals, and how the storm affects fundamentals.

Besides, a PPT couldn't work in a market like oil, because if the price were manipulated too far or too long, you'd have gas lines. The powers that be want cheap gas, but they don't want to see gas lines going into the elections.

The eldest Hunt was H. L. Hunt. He was not involved with silver. It is true that he wrote about the dangers of inflation as far back as the 60's. His son Bunker Hunt and others purchased silver futures legally. Arguably they were cheated by the commodity exchange in collusion with the government. Were those who failed to deliver silver that they had been legally sold - criminals?

Gustav is moving toward the west near 7 mph...11 km/hr. A turn
toward the west-northwest and northwest is forecast during the next
couple of days. On this track...the center of Gustav will pass near
or over western Jamaica tonight...move near or over the Cayman
Islands Friday or Friday night...and approach western Cuba on
Saturday.

Maximum sustained winds are near 70 mph...110 km/hr...with higher
gusts. Strengthening is forecast during the next 24 hours...and
Gustav is expected to become a hurricane Friday or Friday night.

Not to wish ill effects upon anyone BUT, if you read the Houston Chronicle online comments re: Katrina victims and media 'hype' regarding storms, the politically backwards denziens of the greater Houston area are due for a major smackdown. The free market can save them, just like utility deregulation worked out so well. Just sayin.

Oh, they're just repeating what Fox News has told them: the Katrina disaster was caused by corrupt Dem LA politicians, and it was "those people's" own fault for not leaving immediately. GWB had nothing to do with it. (I get my Fox News from my weekend bicycle riding partner...).

That is what my son was taught in school. It was all the fault of the state and local pols and the people who wouldn't evacuate. He had to write a paper about failure to send the school buses using facts supplied by teacher. She didn't realize she was pushing an urban myth.

Depends on God's grip and whether he swings outside-in or inside-out. Of course, if he is coming out of his swing, He is going to slice.

Joke

One day a twosome met up with another twosome on a par 4. "Mind if we join you?", they asked.

The other twosome was Jesus out golfing with St. Peter caddying. "Jesus, it's 250 yds across water and there is a lay up to the right at 150, hit the 7 iron." "No", says Jesus, "Give me the driver." He hits the ball and ka-plunk! in it goes into the water.

He is all pissed off and walks out across the water to play his ball not wanting to give up a stroke. One of the other twosome asks, "Who does he think he is, Jesus Christ?" St. Peter answers, "No, Arnold Palmer".

TROPICAL STORM FORCE WINDS EXTEND OUTWARD UP TO 140 MILES...220 KM FROM THE CENTER. ... SATELLITE IMAGES SHOW THAT GUSTAV HAS AN EXPANDING CLOUD SHIELD AND IMPRESSIVE BANDING FEATURES. AN AIR FORCE RECONNAISSANCE PLANE THAT HAS BEEN SAMPLING THE STORM'S CIRCULATION FOUND THAT THE SIZE OF GUSTAV HAS SIGNIFICANTLY INCREASED. ... GUSTAV IS EXPECTED TO BE A LARGE POWERFUL HURRICANE AS IT APPROACHES THE NORTHERN GULF COAST.

I chase these things so I take some interest in where they're going and how they behave. Was in the middle of Katrina and half dozen smaller affairs.
Skipping one update here, but this is interesting.

First, basic premise with hurricanes is warm water good, cool water bad. They intensify from the warm, they poop out over cool. (even mega monster Katrina had some cool water issues right at landfall on her left side. Not enough to really throw her off, being the freight train that she was, but still, a smaller storm would have had problems...anyway)
See the latest Surface Temp matrix, three day compilation.

Note the big lake of cool water from NOLA east past Panama City. A
storm gets over that on it's run to landfall and it tends to weaken, sometimes really badly as warm water is necessary for the powerful convection that these storms are made of. Cool interferes with that process. I've been chumped more than once by cool pockets of water just offshore.

So, say we stick with NHC's track, which has been pretty consistent these last three or four runs (and they're good at what they do, by the way). That would seem to put Gustav over average warm water into the middle of nowhere west of NOLA. Intensity forecast reflects this; a CAT 3 over the hot stuff in circle 1, then down to a CAT 2 in circle 3.
If it drifts and runs further west over circle 2, we got hot again. That would mean a sustainment of intensity and puts Houston into the crosshairs.

But lets say it does a fat Gulf re-curve and comes in east of NOLA.
Well, now the lead elements are hitting all that cold water as it makes landfall. Not good for a storm if that water is cool enough.

Even if it comes right onto NOLA, it's north east quadrant is sucking up cold water as it spins counter-clockwise. Again, not good for the storm, going to cool that hot convective process and weaken it, perhaps badly.

(This is especially important as that NE quad is the one that would wrap around and drive intense wind down the lake from the north and NW. That drives water down towards any surge coming up the mouth of
the river and you have a big pile up, which is what doomed the canals during Katrina).

If it's a compact storm by the time it gets to landfall, that kind of interference can be really damaging, just like it was when we chased Dennis. Nice, hot little CAT 3 storm, until it hit the cool pocket south of Pensacola and then it's core contracted really badly. We missed the eye wall because of that.

So, it's track over these various pockets of different water temps
bear watching. (mind you, these temps change too, so we watch them
closely as well.)

We'll have a much better idea of where this storm is going to go
exactly and how hot it's gonna ramp up after it clears Cuba. As that
happens, we all keep an eye on it.

Assisted evacuations will start later today. For St. Bernard Parish, the cut-off for requests for assisted evacuation was midnight last night.

Requests for more volunteers with CDL to drive buses.

Prisoners being moved as are animal shelters.

Unlike Katrina, plenty of time to plan and execute in Sequence (due to a sudden and dramatic change in direction, Katrina started at 40 and not 72 hours before landfall).

Contraflow from both SE and SW Louisiana appears likely on Sunday. This will take every state trooper. Mutual aid, including exchanging state troopers depending upon path of the storm, with Mississippi & Texas.

The only on-going assistance is those in poisoned FEMA trailers that were moved into rentals units after the FEMA cover-up failed (due to Sen. Landrieu bringing in the CDC to deal with epidemic of illness in FEMA trailer inhabitants). From uncertain memory, 6 months rental assistance for those forced out of FEMA trailers (I meet two homeless people that left FEMA trailers because it was making them sick, this was before FEMA cover-up was exposed).

I believe that many of the volunteers putting out the e-mail hate against Katrina victims are currently preoccupied with proving Obama is a Moslem. Another hurricane in New Orleans might cause their heads to twist off.

Hey, if they're willing to spend as much time using the Internet for that purpose as we spend at The Oil Drum trying to salvage the future... and they're more successful than we are... maybe the future isn't salvageable.

Tropical Storm Gustav will have more and bigger offshore energy targets to hit than the 2005 hurricanes did, should the storm stick to its projected path through the central Gulf of Mexico.

In 2005, only two platforms produced more than 100,000 barrels a day; this summer, six are producing at that level or are preparing to do so. Since 2005, oil and gas production has increasingly shifted to deeper water off the coast of Louisiana, with a handful of giant platforms generating volumes once produced by dozens of small, shallow-water facilities.

And those are all floating production systems Leanan. I've heared many, if not all, have had their anchoring system design beefed up since K. Same goes for the mobile drilling rigs. Maybe we'll see just how good those new designs will work. I'm sure they looked good on paper.

"There are a lot of things in the industry that have improved since the '04 and '05 seasons, but at the end of the day, it's going to be a question of how destructive storms are and how powerful they are when they go through the Gulf," said David Dismukes, associate executive director of the Center for Energy Studies at Louisiana State University.

On the satellite photo, what you're seeing is the high-level cloud shield over the hurricane, also known as the central dense overcast (CDO). This veil of cirrus and cirrostratus tends to hide the low-level circulation of the storm from the "eyes" above. With air rising quickly in the strong convection of the storm, higher pressure (relatively speaking) tends to develop in the upper atmosphere right over the storm, while strong low pressure (relative to the surroundings) develops at the surface. With a developing upper-air "anticyclone", there might be some counter-clockwise circulation in the upper outflow.

Rockman,
Greywulffe is telling you true - what you see is the upper-level anti-cyclone clouds. Development of an anti-cyclone in the upper layers is an important aspect of storm intensification, as the convection at the lower levels needs to "breathe" well at the upper layers -- this is termed upper level outflow. Sometimes you'll hear tropical forecasters remarking on "good outflow in all quadrants", or "outflow in the NW quadrant affected by a ULL". A ULL -- upper layer low -- tends to rotate counter-clockwise like the storm itself and general has the opposing effect to an anti-cyclone, shearing off its precious convection.

Like geology, the storm models are improving but there is still a lot to be learned, and timeliness of results hampers the complexity of computation that can be managed. Gustav is a good example of the problems the computers face. A few days ago it was well formed and growing, and was forecast to stay that way, but interaction with Haiti and an unexpected north-south ridge hampered its development and motion, and rather than strengthening it almost died. Today it has reformed larger and a new set of model tracks are being generated, but there is a LOT of room for track and intensity error. By Sunday we could easily have a small Cat 5 or a large Cat 3 heading for NO, or we could have a large cat 5 headed for Texas or a small Cat 3 going for the Floriday panhandle.

I doubt we'll see anything much less than a Cat 3 by Sunday, though, and I wouldn't be surprised to see a rapid intensification to Cat 4 prior to Cuba followed by some eyewall replacement cycles (natural restructuring processes of a hurricane) with increasing size overall.

Spend some time at Weather Underground in Dr. Master's blog if you want to learn the basics. They know tropical weather just like you folks here know oil, and you can pretty quickly pick out the "smart ones" and filter out the wannabees and trolls just like here. If you have family on the coast you'll get continuous data on the blogs there as the storms landfall.

I've never seen the oil infrastructure maps on the WU blogs though -- these are superb.

There is a good chance that a Cat 3 or greater will slow or stall over the oil fields on Monday. That would be good for the coastal population, as the cooler water will sap the storms strength, but I wonder what a prolonged lower-intensity storm (say, coming it toward Dauphin Island as a Cat 4 or 5, then curving west just off the coast as a Cat 3 and ending up in Texas as a Cat 2) would do to the rigs?

Excellent info guys ...thanks. Regarding water temps I did see a report this morning showing that GOM temps were several degrees warmer than at Gustav’s current location. That would seem to offer a greater possibly of intensity increases. Also, granted my mind's eye isn't as sophisticated as any of the models, but just looking at the WS satellite loop image it appears that the high coming in from the north will get to the Fl panhandle before G makes landfall. Likewise, the Pacific system sitting over Mexico also looks like it might offer a barrier to westward movement. Thus it seems we may see an "alley" for G to roll right into the middle TX coast....right down the road from me. The front moving south also makes me wonder if Hanna could get pushed farther west than north. Might be a long shot but that makes it look like both G and H could hit the GOM.

There is a good chance that a Cat 3 or greater will slow or stall over the oil fields on Monday. That would be good for the coastal population, as the cooler water will sap the storms strength, but I wonder what a prolonged lower-intensity storm (say, coming it toward Dauphin Island as a Cat 4 or 5, then curving west just off the coast as a Cat 3 and ending up in Texas as a Cat 2) would do to the rigs?

A scary but potential scenario is for Gustav to head north off of Mobile AL, then hang a left and cross directly through the ENTIRE GOM OCS as a cat3 for Texas. Basically a Katrina and Rita level damage all at once. But this is low odds of happening (but each discrete scenario also is low odds too, so this has to be considered - we will have much better sense by tomorrow night)

Actually I guess the WORST case scenario would be tornadoes, flooding, etc that damages grid infrastructure and the pumping stations that send fuel to the East coast. We came close to major fuel shortages after Katrina due to this. I don't know if these pumping stations have since installed backup generators, etc. Anyone?

Platform design isn't my thing but there are some insights. Modeling short term stress is fairly old sciences. Prolong and repeated stress is a different matter. The structures are designed to handle very high winds for a relatively short time. As you might expect, flexing a relatively stiff structure over an extended number of cycles is a whole different ball game. It could be an even bigger factor for subsea pipeline damage. Prolonged strong winds could generate currents near shore which could cause a lot of damage. It wasn’t covered much in the MSM but Katrina caused a lot of pipeline/flow line damage. Didn't make for dramatic pics like a toppled drilling rig.

Fatigue is a major concern with MODUs. On the Grand Banks we would ride out 70 footers without problem. The constant beat of 35 footers was more of a concern. I do not know what inspection regime applies in GOM but we were pretty stringent about structural inspections. Each vessel represents a floating capital asset worth around half a billion $ and it won't earn much of day rate sitting with the fishes.

There was a prior comment/quote about adding anchors so each unit had 12 instead of 8. I don't quite understand this as the real holding power is developed from the catenary weight of the anchor rode. Adding cable reduces variable deck load so there is a big trade off there. Just adding another hook does not do much for holding power.

I don't quite understand this as the real holding power is developed from the catenary weight of the anchor rode.

I'm guessing that you mean rope not rode and what your talking about is like a kite at the end of a long string the weight of the string itself is whats holding the kite not the anchor (you). As with a kite new string of similar length don't make a lot of difference however a new much longer anchor rope would probably help ?

No I mean rode. The links are steel maybe 8" by 14." No rope would have the required tensile strength.

is like a kite at the end of a long string the weight of the string itself is whats holding the kite not the anchor

That is it exactly. When the sea pushes against the hull, the retreating hull attempts to lift the kite string off the ocean bottom. The catenary curve absorbs the horizontal translation and creates a restoring force that returns the hull to its prior position. Very little of the "pull" should actually make it to the hook.

Talk of anchors and string: I was once on a hovercraft that broke down at night in a major shipping lane. I went looking for the anchor to secure us and damn if the anchor rode was nothing more than string. The anchor itself was this lightweight tinfoil thing. You don't want to carry excess weight on a hovercraft and nobody ever expects to use the safety gear :-(

Okay, but the cyclic load is presumably planned to be within the elastic range of the members.
Long-term exposure to regular loading beyond the elastic limit will lead to fatigue failure, right? So if the weather extremes are ramping up, it's not just the levees that will be taxed beyond their design parameters.

I tend to agree even though I barely understand. Basically adding more anchors does not really do a hell of a lot of good. You have a fairly strict limit to how much force you can withstand with this sort of arrangement. Its like adding multiple shock absorbers two is better than one but three gains little.

At the end of the day its a tensile issue. Your right its planned to be within range but when its out of range thats it does not matter really how many your have if your over your over.

Certainly exposure would be and issue but I think it comes down to a design limit issue.

I got caught once in a 27 foot boat in hurricane force winds off of Florida I know for a fact how much power is in the wave action. Think perfect wave but cut the boat size by 60%. Its simply out of this world. I have a sympathetic understanding of what the old Spanish sailors went through. I think that few people really know the power of hurricanes. You can think of it like and atomic bomb or the worst explosion you have ever thought of going off then damned if it does not happen again and again.

The waves where so large we could see them coming at us on our radar, And they knocked down our antennas. Two shrimp boats sank during the wind Tampa has seven foot waves the next day. What it was was a hurricane trying to form in the gulf. I heard the wave reached 25 feet but from the bottom of our boat to the top of the conning tower was at least 20 feet and we had waves in the middle of the ocean like surf breaking over us.
The big boys had to be at least 30-40 feet high if not more for us to pick them up on radar. I don't know how high they were but they where huge waves the front of the trough at least 3-4 times the length of the boat. These monsters where actually not near as bad as the ones that where breaking like surf and about 20 feet hight they where the real killers and we could not see them coming.

Slightly off topic but it gives you just a hint at what it means to ride out hurricane force winds with and anchor. Probably a bit off topic but I assure you most people really really don't understand the power it took me a long time after that to even get back out on the ocean.

I read the AGW deniers and I shake my head. They hear of a 6 degree rise and think so what.

Problem is that most modern urban people have never had experience of the raw power of nature. Without that experience they are not able to fully judge what they see on TV news, or to grasp the full implications of 100 knot winds, or what a 6 degree temperature rise truly may mean.

In another life I was on SAR patrol for the BC herring fishery. It was lumpy out so we holed up in an anchorage. Off the bows there was a 100 foot rock pile and on top of that was a crown of jack pine another 100 foot high. Beating on the other side of all that was the Pacific and the spray was coming in solid white sheets flying over the tops of those trees. That was heavy weather but not a hurricane. They should rename them heat storms as that is what they are.

With regard to design limits, it is not just the number of hooks or the anchor pattern. It is the age of the design (Is Mr Charlie still out there?), the quality of the build, the materials spec (lotta bad steel in the 1980s), the classification society, the maintenance and inspection schedule, the quality of the folk performing all the various roles. Gustav or Hanna or Vladimir is going to test all of that. Matt Simmons is 100% right when he speaks of aged infrastructure. There will be leases where they cannot provide economic justification for the rebuild. But moosehunting and snowmobile races are what capture the attention of the public and then they wonder why the quality of leadership is so poor.

I did my best to explain what I went through I think you explain it better.

Think about surf breaking over the trees and then you have at least the basis of a hurricane.

Whats missing is the monster waves every ten or so waves. A three meter storm surge does not capture the fact than ever tenth wave or so is actually six or more meters at least and it that are a few monster waves of unknown size every few super waves.

A three meter storm surge does not capture the fact than ever tenth wave or so is actually six or more meters at least and it that are a few monster waves of unknown size every few super waves.

Yes these monster waves are also known as rogue waves which are caused by two or more large waves intersecting from different storm systems. And since we have a bunch of storms brewing in the GOM one would expect a few of these. To get an idea of their power and their proclivity to come out of nowhere you may want to watch this video.

What 12 anchors does is allow a 30 degree spread instead of the 45 degree spread you get with 8. With more anchors, aligned at better angles to the weather, the strain is shared, and the peak loads which cause line failure and / or dragging are reduced.
Another advantage is that in the event of failure of one line, it can be possible to obtain classification society approval to continue operations with the remaining 11.

I dunno see my long comment above once your over your over. The load sharing adds little basically it means you get to say a few extra prayers between the first few lines snapping and the last one snapping. I've been in this crap and no way extra lines amount to much if its strong enough to start snapping them.

The second sentence about breaking loads makes a lot more sense knowing the little I do about the ocean whatever level of energy its riled up to it does in abundance. But if its strong enough to snap one it can and probably will snap them all.

Typically the vessel will drag rather than snap the lines. In the GOM where you have significant sub sea infrastructure this may create a lot of problems as the ground tackle will damage whatever it drags through.

Please introduce me to the people you know that have dragged lines or been on a platform that has. I'm not saying it does not happened but the difference between dragging and breaking is probably nothing.

I think we will agree that any system will exhibit failure at its weakest point. So the question we have to answer is: The weakest point of any system of ground tackle is where?

In the majority of cases (and we are speaking of commercial vls here. What pleasure boaters sometimes do is utterly beyond belief and comprehension) the weakest point in the system will be the holding ground itself. For the most part this will be unconsolidated sediments ie: mud. So you have several thousand tons of vl deadweight, you have an engineered anchor system with a 2x or 3x safety margin, you have some high dynamic loads and all of this ends up in the mud. What gives first? The mud.

You can piggyback your hooks. You can put out additional lines. You can use your DP system to take some of the load. Heck, you can put yourself under tow. But bottom line is you are hanging onto mud. And the guy who engineered the mud, I'm not sure if he did a great job or not.

TH is pretty much in the middle of all the storm models. About 100 miles south of the mouth of the Miss. River. Somewhat ironic since they almost ready to start production after the long delay caused by K.

Once hurricane season is over I'd like to invite you to the west coast to enjoy and earthquake. We had one the other day and my five year old son was pooping when it started. Given the situation he actually did not shit his pants but finished rapidly and left the bathroom.

Personally being older being caught in and earthquake while your taking a dump brings on a certain interpretation which we don't even have a word for to the phrase

So, we have discussed the higher cost of drilling offshore petroleum than onshore. Does an event like this, if it tracks as modelled, increase the cost of offshore drilling worldwide? I would think it could with insurance, replacement of rigs/parts, etc.

Understand that these may not be the storm that cause the problem but a perturbation like what we are seeing right now will occur every few year think about these storm occurring say two years from now. The point of the fast collapse scenario is we cannot predict when it will occur but we can say with almost 100% certainty given the periodicity of events that our current civilization will be in collapse within five gears.

I'm willing to bet everything I have that we will be under within five years of today and on the same hand I cannot bet a penny on within this range we will go under. Such is the nature of the problem.

You are looking at the same supply / demand curve as impacts the cost of the product.

We are already in a constrained environment with tight supplies of rigs, steel, qualified people. If you need to replace some percentage of the existing infrastructure therefore adding additional demand to the current environment it seems reasonable to expect the costs of all inputs to increase.

I cannot tell if memmel is just typing fast, or if he is trying to type while balancing a bottle of hootch on his nose, but if I read him correctly what he is saying is that the yearly recurrence of this pattern will result in disinvestment as capital will flow to regions of lower cost. That sounds reasonable to me.

Weird. Oil hovers around $117, apparently unaffected by the forecasts. If it won't spike today, we'll probably see it monday or tuesday. And if it won't spike at all, i'll never predict oilprices again. ;)

Just as with Katrina - market was closed Monday but futures trade sunday night and in europe monday am. (I remember that weekend specifically because its when I first met Stuart and Richard Heinberg at Community Solutions conference in Ohio)

Post-Katrina gasoline price spikes were partly driven and sustained by disruption of the Colonial Pipeline caused by power outages. (The Colonial carries products from the Gulf region to the East Coast over land.)

Frankly, the lack of reaction in oil prices to the hurricanes and to Russia's invasion of Georgia should put to rest all notions that the price is driven by speculation. Rather, the price is driven by very short term supply and demand forces - ie those who have the oil and those who burn it almost immediately upon buying it are in control of the price of oil.

So, when oil spiked to $147/barrel, that indicated a very tight supply and bidding situation. Because of decreases in demand (probably from China due to Olympics) and increases in supply from Saudi Arabia, the price has come down. The price won't go back up due to a hurricane or from Russia's threats to cut off oil until supply is actually disrupted and the buyers suddently can't find the oil to buy.

I totally agree with this!
The only thing I would add is that sometimes there is a temporary disruption in the supply of futures contracts, so that there is a spike or dorp in mkt - this clears out people on other side of trade which results in larger than normal retracement in other direction.

But in some futures markets represent best info on ABOVE ground resources (but they do crappy job on below ground..)

Remember how it was in school, when you knew the answer to the teacher's question immediately, and the rest of the class sat there forever looking blank?

Basically the speculators won't get their signals until the commercials start to move. The commercials can't start to move until they know what's happened. Imagine buying oil for your refinery, only to have your refinery severely damaged by the storm. Plus, why pay storm prices when you know a gov't nervous about elections will release supply from strategic reserves if the damage is severe?

Those big abrupt moves up that everyone's looking for would normally come from shorts having to get out of their positions. Longs know the shorts are vulnerable, and wait for higher prices to make deals. But people have been closing out shorts on dip after dip after dip, and we even already had a short squeeze, so that lemon's pretty dry.

Hi all. Here's a chart of the wind and pressure (altimeter setting) at Kingston, Jamaica, during the passage of tropical storm Gustav:

Note that the time axis is column-scaled, and special observations outside of the usual hourly reports distort the depiction (somewhat).

Gustav was no hurricane Gilbert, which devastated the island in 1988, but was still a serious storm. Based on the sustained wind readings at Kingston, gusts were possibly approaching 70-75 mph (roughly 110-120 km/h) at times. Such wind speeds can cause serious disruption, especially if there are plenty of trees to be knocked over (forced amplifiers).

*ALL* of the local weather casters are downplaying the certainty of a hit by Gustav. A possibility, yes, be prepared, but "too early to tell".

Do NOT evacuate to elsewhere on GOM.

And Nagin is spending a lot of time on mental health issues, asking people to reach out to friends, family, neighbors that seem withdrawn, cannot make a decision. And providing some advice on dealing with children (talk to them, reassure them, strictly ration TV watching/internet time).

Nagin also warned West Bank residents, who missed severe damage from Katrina, that this could be their time.

Why all the oil focus on Gustav around here? The market just told us that there wont be any oil production shut in, refineries are aok, there won't be any gasoline hoarding and Russia is all bluster. Ha!

I'll stick by my earlier contention. It wasnt a free and open market when oil prices sold off $4 bl on the advent of Katrina and it wasn't legit this week either.

Moe's quote:

"Besides, a PPT couldn't work in a market like oil, because if the price were manipulated too far or too long, you'd have gas lines. The powers that be want cheap gas, but they don't want to see gas lines going into the elections."

I think you're mostly correct here on longer term ramifications. The intent is shorter term- burn the specs, take the wind out of the scramble for barrels and deflate the panic mode. It worked today, didnt it?

But we do have serious gasoline shortages on the pipeline level thru the upper Midwest including Minn, Iowa and the Dakotas. We have oil shortages thru the Southern Hemisphere, in China and South America. And we will see this get worse in the aftermath of this hurricane season, so I'm not sure if your rebuttal fully stands.

BISMARCK, N.D. - Industry officials are mystified by fuel shortages at terminals in the Upper Midwest this week, but they expect enough supplies for the Labor Day holiday weekend.

Terminals have run out of fuel in West Fargo and Grand Forks in North Dakota; Alexandria, Minn., and Sioux Falls, S.D. Dozens of tanker trucks lined up in West Fargo on Wednesday after a new batch of fuel was delivered.

Wow. I think that must be due to local 'hoarding'. According to EIA website market is well supplied:

The EIA has released its EIA 914 gas production data for the month of June. Details below…

Key Takeaway: US production continues to show dramatic growth as the rising rigs count is being reflected in the production numbers. Also contributing was the return of the Independence Hub facility in the GOM. While 8.6% y-o-y growth in June, following similar figures for all of 2008 is adding to concerns about an over supply situation, we view the one-time additions from IH and the Rockies Express as the primary drivers, and as we lap the start-up of those facilities late this year, we expect year-over-year comparisons to improve and return to a more normalized 25-3% level. With the weakness in gas prices dragging on, the rising rig count should level off, ultimately slow production growth as well.

* Onshore production, driven primarily by unconventional resources, was up 10.5% year-over-year and 0.5% sequentially. The rig count also continues to rise with this weeks rig data showing 1,606 rigs drilling for gas. This compares to an August 2007 average of 1,492 rigs.

* Offshore production rebounded sequentially as the Independence Hub (IH) platform returned to production in mid June. Sequential production was up 9.3% though the year-over-year figure was down 3.5% as the GOM continues to fight a tough decline curve.

* Overall production was up 8.6% year-over-year and 1.5% sequentially, continuing the string of strong year-over-year comps we have seen in 2008. In looking at the rebound this month, the impact that IH has on the overall supply situation is clear. IH offline in April and May 2008 and total US production was flat. Return to service in June an production resumes climbing. Onshore will continue to grow but as we lap the start-up at IH and production there ultimately begins to decline, the overall growth rate will slow later this year <> and into 2009.

(EDIT: I posted wrong data but it is relevant to nat gas so I'll leave it here. Thanks for your insight below Leanan - you are likely correct)

The most commonly used number for MOL for gasoline is about 170 mb, so we have about 60 hours or so of supply in excess of MOL nationwide. As Leanan noted, some areas have more than 60 hours, some have less--especially at the ends of the distribution system.

As others have noted, the most likely petroleum related problem resulting from the hurricane(s) will be shortages of refined product.

If we do get a whole series of hurricanes--or one like the 1900 Galveston hurricane--massive cumulative damage to powerlines along the storm path(s) is going to be a problem, which of course causes problems for gasoline stations.

I agree we have reasonable amounts of natural gas but give that in the previous years when supply was increasing we topped out of the average range and this year we have had repeated injections that seem to only keep us in the average 5 year range.

I simply don't buy that we have had a huge increase in NG production.

I don't have the link but the Texas Railroad commission report is inline with what we are seeing in storage.

Stocks in the Producing Region were 8 Bcf below the 5-year average of 785 Bcf a net injection of 25 Bcf.

Working gas in storage increased to 2,757 Bcf as of Friday, August 22, 2008, according to EIA’s Weekly Natural Gas Storage Report Weekly Natural Gas Storage Report (see Storage Figure). This report week’s implied net injection of 102 Bcf is considerably higher than both the 5-year average injection of 57 Bcf and last year’s injection of 38 Bcf. As a result, current inventories are now 2.6 percent above the 5-year average level of 2,686 Bcf. Further, the deficit between current inventories and levels last year at this time decreased to 6.8 percent, or 200 Bcf. The injection marked the third-largest weekly injection during 2008 and only the third time the weekly injection has exceeded 100 Bcf during 2008. Indeed, this is the largest weekly net increase to storage during August since data collection began in 1994, and the first time a weekly injection during August has exceeded 100 Bcf.

Of course its always a supply and demand equation but if you look at the previous years we had indication that supply was ample and storage was at the top of the 5 year range. Continued above normal injections with working storage staying in the middle of the five year range means supply and demand are balanced.

With NG shortages can come on quickly but we don't see evidence of extensive growth in production its either small growth < 5% flat or declining production.

And further more we are seeing some of our largest injections in a declining price market the hurricane not withstanding. Overall NG prices are favorable and in general producers should be injecting into storage close to the maximum rate.

The real natural gas production situation can probably change very rapidly given our dependence on shale production with its steep decline rates.

My opinion is that not only have we not seen the supposed increases but that we may be seeing shale production declining fairly rapidly over the next few months as new production fails to keep up with the initial boost from the first 5 years of development. A lot of this early production is now in rapid decline pretty much for the first time. I think we will see soon that the new production is unable to prevent and overall decline and the only issue is how steep it will be.

Certainly this seems to also be balanced by what looks like increased demand this year despite the high prices but I don't see the current situation is simply the result of higher demand.

I think you're mostly correct here on longer term ramifications. The intent is shorter term- burn the specs, take the wind out of the scramble for barrels and deflate the panic mode. It worked today, didnt it?

Yeah, but Downstreamer, it's so easy to burn specs, you don't need a PPT to do it. All you have to do is give Bloomberg a headline.

Alan, I would NOT wait until Monday pm. The GFDL model is much faster than the other models and has been the most consistent and has it arriving before that (or concurrently). The GFDL, if verified, puts the city underwater, and the HWRF comes close with an even stronger storm. I think the decision for an evacuation needs to be made tomorrow am, and I would leave sunday at latest if these models look anywhere close to being right.

Mandatory evacuation for St. Bernard, St. Charles, Placquemines and LaFourche Parishes Saturday (noon for all but St. Charles, 5 PM for them). I think Terrebonne was included in list.

These are the most exposed Parishes and first of three layers of planned evacs.

I am waiting till 2 AM Monday (not 2 PM) for a decision of whether to evac or not. About the last one out is my strategy ATM. But subject to change. Go to Hammond (I-55 & I-12) listen to radio, eat a meal or two and be first one to drive back in Monday PM.

Starting 8 AM public buses that want to evac and do not have funds will start picking up those that want evac.

Total mobilization of Louisiana National Guard (those not in Iraq). Units from Arkansas and Tennessee are "in transit" to replace LA Guard helo assets deployed in Iraq. Assets that were included in emergency plans.

Alan

Bob Breck, my favorite meteorologist, has an interesting theory. Hanna will help pull a blocking high down south faster and this will force Gustav towards Texas. He was VERY non-alarmist. BTW, said that Gustav is NOT another Katrina.

Today is the 3rd anniversary of Hurricane Katrina's catastrophic hit on the Louisiana/Mississippi/Alabama coast. Unfortunately, I think that people living in New Orleans should mark the anniversary of Katrina by getting the heck out of the city. You live at the bottom of a bowl, ten or so feet below sea level. This is not natural. Nature wants to fill up this bowl with huge quantities of Gulf of Mexico sea water. There is a storm capable of doing that bearing down on you. If you live in New Orleans, I suggest you take a little Labor Day holiday--sooner, rather than later, to beat the rush--and get out of town. Gustav is going to come close to you, and there's no sense messing with a major hurricane capable of pushing a Category 3 storm surge to your doorstep. Don't test those Category 3 rated--but untested--levees. Conventional pre-Katrina wisdom suggested that the city needed 72 hours to evacuate. With the population about half of the pre-Katrina population, that lead time is about 60 hours. With Gustav likely to bring tropical storm force winds to the city by Monday afternoon, that means that tonight is a good time to start evacuating--Saturday morning at the latest. Voluntary evacuations have already begun, which is a good idea.

I assume you're the well-prepared sort? A stray tornado can be worse then a hurricane hit......

I also assume you're traveling alone, and have no family to deal with last minute? Much better to be early-out than late with kids, I'd think.

I'd make sure you have plenty of fuel, cash, drinking water, toilet paper, lighting, batteries, and subsistence food along with you. If it's a near-miss and you're self-sufficient, you might be able to help out on the way back unloading FEMA trailers or something. A buddy of mine volunteered for Katrina relief and got redirected to Rita, and his observation was that there were more trucks than workers. Also note that if damage is bad, you may be blocked from returning.

Recently there was an excellent documentary about NOLA/Katrina on PBS. It was stated that the dikes and levees at that time were engineered to withstand no more than a cat. 3 swirly. Are the rebuilds the same strength? If so, better high tail it quickly. Also, I heard that the 9th ward (or was it 9th street?) canal wall was not complete at present. True? Take heed my friend. Good luck and best hopes for you.

The levees were purported by the US Army to withstand a Cat 3 hurricane, but failed far short of their design load.

By 2011, we are supposed to get the true Cat 3 levees we were promsied in 1967/8. http://www.Levees.org got a law passed that all Corps designs are reviewed by an outside engineering firm to confirm that design = spec.

Gustav's forward speed seems to be on the increase. And strengthening appears to be renewing (again), with the 18:00 UTC statement indicating 984 mb and 70 mph sustained winds (very close to Cat-1 hurricane level).

(Bloomberg) -- The Louisiana Offshore Oil Port, the biggest U.S. oil import terminal, plans to shut its marine operations in the Gulf of Mexico tomorrow as Tropical Storm Gustav may strengthen as it approaches the region.

As a possibly devastating hurricane appears to head toward the Gulf Coast, an elaborate set of detailed evacuation plans are being set into motion, down to the last helicopter to fly people out.

Who is behind this expensive, military-style movement?

ExxonMobil, Chevron and Shell.

Say what you will about the federal government's past evacuation efforts and its current plans, but don't criticize big oil. The companies have the money, know-how and experience to move thousands of workers from offshore oil platforms and rigs to safety in a matter of days.

Someone at Storm2k posted something about the preparations they are making, including:

Fuel plan was activated Thursday morning and there has been significant demand increase in the SE/upper TX coast area. Suppliers have all fuel terminals at full distubituion capacity and a flooding the entire retail system with as much fuel as possible. There have been a few supply issues in Harris County but these have been corrected. Today and Saturday the fuel plan will continue to surge to local retail along the coast and begin to push supplies to the evacuation routes and contra-flow corridors.

During my Katrina evac, I saw two fuel tankers parked at one large truck stop (off to one side outside normal parkig, my impression was reserve tanks that would empty ASAP and evac themselves) and a single tanker at another smaller station.

We and Houston have enough refineries locally that simply halting shipments north will assure enough fuel for evacuations.

HOUSTON (Reuters) - Oil and natural gas companies shut production across the Gulf of Mexico on Friday as they moved workers out of the path of Tropical Storm Gustav ahead of what could be the worst hurricane to strike the nation's offshore oil patch since 2005.

Tropical Storm Gustav was expected to strengthen to a powerful Category 3 hurricane over the weekend before tearing into offshore production areas early next week.

With about a quarter of U.S. oil output and 15 percent of natural gas production in Gustav's path, U.S. crude oil shot up $3 early Friday to above $118 per barrel as traders eyed possible supply disruption.

As of Friday, 6.62 percent of Gulf oil production and 1.84 percent of natural gas production were shut in due to Gustav, the U.S. Minerals Management Service said.

Oil is at a much higher price level than it was in the Summer of 2005. Government incentive to try and manage the price is now higher as well. So clearly, Washington--like any other trader--has spent some time on the learning curve the last few years, and now understands that pre-announcements of willingness to release from the SPR works to dampen down price. While this looks like prudent management to some, it mirrors some of the other hazards that arise when the government gets involved in markets. In short, oil from the SPR is not produced oil. It creates supply but its unsustainable supply and therefore artificial. Just in the same way that the FED lending out its own securities to shore up the balance sheets of troubled banks is also artificial. It's all part of pain-reduction but the price is that systemic risk actually rises.

The futures market acted in textbook fashion this week. They rose initially to price in the risk. Then the fell to price in the promise of an SPR release. NG action was a bit more curious--however, it closed up for the week. I have seen some widespread misunderstanding on the investment boards that the way to play hurricanes is oil, not NG. I'm baffled as to why people thought that, as the historical record shows Washington can release oil from the SPR. However, there is nothing Washington can do to re-create lost NG production. In 2005, NG and especially NG equities sustained strength well into the end of the year.

Oil ended the week at the familiar level of 115.00 and NG at 8.00. These are not encouraging levels to be seeing so often after the highs, if one's hope was to see even lower prices before year end. September often sees a gentle upward drift in both Oil and NG regardless of hurricanes.

Once again, a new ATH short position in NG was built this week, for the 4th week in a row, by Large Speculators. This is pretty dangerous, for them. My interpretation: the level of conviction about abundant and cheap new supply of NG is now so rampant and widespread, that we are reaching those classical levels of certainty that often pressage a reversal. The NG Monthly which was released today showed weaker June exports to Canada and Mexico. This may be seasonal. The bottom line is that risk in NG is exploding to the upside, as the price appears to be docile at 8.00. Watch out.

Well if the shorts control the printing presses then this looks like a fantastic way to kill three birds with one stone. Inject money into the economy and keep energy prices down. And it keeps the stock market up.

I can't imagine Helicopter Ben and I think the same way can you ?
And also I'm not vain enough to think I'd be the only person to think this way.

If your goal is to "lose" a lot of money to get it into the economy then I don't see a lot of problems with whats happening right now.

Of course they can only inject so much before they risk slowing down drilling/production and real shortages so its not a perfect situation same of course with oil.

Needless to say I suspect we will see massive short interest for some time with billions "lost" at least until we see real supply problems with NG then they will have no choice but to fined another liquidity injection method.

it sounds possible but I don't buy it. There are 359,000 contracts spec short nat gas. With the notional contract at $8 per mcf this is $80,000 per contract, this is $28 billion, a tidy sum, but only 8% required for margin or $2 billion. A stock like Microsoft trades that in over a day. The forex markets are HUGE compared to nat gas. Nat gas positions are STILL not unwound from Amaranth trade. I think its just that we have lots of gas in storage and have had mild winters and Haynesville has 2+TCF per year on the horizon so the average non-peak oil aware investor thinks being short is the right trade.

First the CB's are more then capable of pumping in 500 billion into the various markets they want to see come down.

Its not a lot of money at this level. I don't know the exact number but 500 billion would more then do it as you pointed out 2 billion is probably enough to move the NG market a real number could be as low as 50 billion.

Entities exist in this world that can and will lose 50 billion or more if its what they need to do to move the markets for their own reasons.

If it was over 500 billion or so then I'd say its simply to much. But less than this is doable and done right it can be a lot less 2 billion in the case of NG for example.

Lets go with a much more reasonable number say 100 billion dollars into the commodities markets on the short side what would be the outcome of this given that the entity doing the trade does not care if it loses money ?

Given the state of our economy and given that such a move solves so many problems why not ?

It won't last for ever and can't be done that often but its certainly a move can is feasible and can be done from time to time. It has moral hazard out the ying-yang but if your not worried about the long term implications and simply wanted the markets to turn for a few months why not ?

Barnett Shale vs Haynesville Shale assuming a fixed but increasing number of rigs each year with a lot of older wells in the Barnett Shale.

Where do the rigs go ?
Whats the production profile in the Barnett Shale ?

Whats the net addition ?

Unless we are almost doubling the number of drilling rigs each year I'd say its not clear that we get any net addition. Certainly operators with more older wells are going to be at a disadvantage bidding for rigs.

Nate these Shale plays will quickly be competing with each other driving up costs until someone goes out of business. Look at Baker-Hughes we simply cannot add new rigs and crews fast enough to change this.

And yes this is somewhat on topic :)

If these storms turn out as bad as they look like they may be and GOM gas production is shutin for any length of time. What I'm saying is that even if this causes a price spike and a gold rush drilling for NG we cannot add rigs fast enough to prevent us from reaching the point that we make no net new additions despite the number of wells drilled.

I'm a lot more pessimistic than this but the chances of onshore unconventional production being able to overcome damage in the Gulf is in my opinion zero.

At best we will or have reached the point that new drilling rigs cannot keep up with the decline rates of old wells much less increase production so it does not matter how much shale NG reserves you have you would have to double the number of rigs in the field every year and this simply is not feasible from a manpower standpoint alone.
Also these are very complex wells and frac jobs in the shale its not simple.

So to bring it back on topic.

If we lose a substantial amount of NG production in the Gulf from storms this year the US will not be able to recover we will permanently be down at least this amount. By the time it comes back online at whatever level its at we probably would have already had a overall decline in the net production from the shale.

I'm aware of course that the actual offshore rigs differ from onshore rigs but other than that they are competitive for a lots of parts and labor. Given the greater expense of working offshore I'd not be surprised to see that if many old NG wells are damaged that its no longer profitable to refurbish them. And depending of course on the damage as time goes on we may never see these wells reopened.

All this also plays into my concern that the shallow GOM is in steep decline I'd not be surprised to see only a fraction of the damaged platforms rebuilt as the remaining oil or gas reserves simply won't justify rebuilding.

Time will tell with all things but if I'm right we and we see damage we won't see a recovery like after Katrina. Nates EROEI will play a huge role in what happens.

In low EROEI cases where the energy is expensive the costs are a lot bigger issue.

Lets say in the past that it meant investing 1 million to make 10 million but today for the same amount of energy its a investment cost of 10 million:20 million.

So EROEI also mucks with the finance side. From experience its orders of magnitude easier to raise 1 million dollars and promise to make ten then to raise 10 to make 20.

So the nature of unconventional production is very important and will make a big difference in my opinion on the outcome of major damage to the oil and NG infrastructure in the gulf.

I have this email from a nice chap who wants to improve my declining, um, something... Says his little pills are safe and may be purchased anonymously over the internets. I can forward you a copy if you wish :)

Hopefully we will continue to inject periodic humor on this site. I have a feeling that TOD's dress rehearsal discussing these issues is about over. What have been meaningful and very interesting discussions are going to morph into more meaningful but less interesting debates.

Hopefully we will continue to inject periodic humor on this site. I have a feeling that TOD's dress rehearsal discussing these issues is about over. What have been meaningful and very interesting discussions are going to morph into more meaningful but less interesting debates.

And perhaps much sooner than we think.

Wise advise always: be of good cheer!

Laugh and the world laughs with you. Cry, and you cry alone.

Unless, of course, you're in the good company of fellow doomers. Tissue anyone?

In a candid interview in today's Guardian Weekend magazine, (UK Chancellor) Darling warns that the economic times faced by Britain and the rest of the world "are arguably the worst they've been in 60 years". To deepen the sense of gloom, he adds: "And I think it's going to be more profound and long-lasting than people thought.
...
Darling admits that he was recently challenged at a petrol station by a motorist struggling with the rising cost of petrol. "I was at a filling station recently and a chap said: 'I know it's to do with oil prices - but what are you going to do about it?' People think, well surely you can do something, you are responsible - so of course it reflects on me.""

Just a FYI...I generally don't re-post articles in the DrumBeat if they've been posted in other threads. There are so many articles already, why duplicate them? Sometimes I don't notice that an article has been posted before (I don't read all the comments in all threads). And if it's a different article about the same topic, with new info, I may post it. But I try not to duplicate links.

Noted and we've gone a bit off-topic in the Gustav thread but I thought it supported Nate's comment.
Btw, this is all over the tv today in the UK. Darling has done a further tv interview for the BBC. BBC News reporter (standing in Downing Street) just said (rough quote from memory): "Well if he really means it then we're talking about things such as the reintroduction of rationing." In latest interview Darling adds, "I am optimistic we'll get through this." - Eeek - he's not sure then...

One more comment if these record short positions are actually manipulation and not insider knowledge that this supposed flood of NG which does not seem to exist is real then this is setting up a dangerous situation.

Most of the shale/NG operators seem to be financing their operations with borrowed money this requires them to hedge or sell forward a significant amount of their future production at todays prices to ensure cash flow and the ability to service their debt.

If this situation turns around and prices go higher and if these same companies have sold to many futures at too low of a price then they probably will see funding dry up and the ability to maintain production fall.

This could easily collapse a lot of these companies paradoxically when your seeing very high NG prices.

Of course this will disrupt production and lead to higher prices and its a beautiful ratchet since the people providing the money assuming that they could take over the companies in a bankruptcy situation that voided the futures contracts would be setting on a gold mine. I've got no idea what happens to real future production agreements when a company goes bankrupt but I'd have to guess they are voided or settled with cash on hand.

It just looks to me that if the prices are being artificially suppressed and real producers are borrowing money selling futures cheap they could easily get wiped out.

Memmel - you are a very smart dude. I agree with most everything you right, except here I disagreed with most everything you wrote. One of us needs to cut back on coffee.

One more comment if these record short positions are actually manipulation and not insider knowledge that this supposed flood of NG which does not seem to exist is real then this is setting up a dangerous situation.

Insider knowledge? we just broke 35 year record highs in production. 99% of financial folks believe the data they see - I doubt this is manipulation or insider knowledge.

Most of the shale/NG operators seem to be financing their operations with borrowed money this requires them to hedge or sell forward a significant amount of their future production at todays prices to ensure cash flow and the ability to service their debt.

"Most"? I don't think so. CHK for sure, probably HK. But FST, GDP, CRK have very little debt. True that shale horizontals are big up front costs, but the gas is cheap cheap to produce (while it lasts)

If this situation turns around and prices go higher and if these same companies have sold to many futures at too low of a price then they probably will see funding dry up and the ability to maintain production fall.

Why would they oversell their production? They usually would only hedge the amount mandated by corporate proxy or required by banks, which is usually much less than 100%. So if gas prices shoot higher, they will lose X in their hedges and make 2 or 3 times X in the rest of their production. Now the speculators, thats a different story. Could be Amaranth in reverse. And the price deck, for reasons of net energy and water restrictions is going to relentlessly climb higher....

This could easily collapse a lot of these companies paradoxically when your seeing very high NG prices.

Some, not alot. There still exists leverage producing $5 gas and selling at $10.
...

It just looks to me that if the prices are being artificially suppressed and real producers are borrowing money selling futures cheap they could easily get wiped out.

No, they borrow money to drill, not to speculate. If they can't make money drilling and selling production, they won't drill. and then prices will go up until they do. Some high cost nat gas producers at the margin will go out of business. But many others will do very well. The bigger problem is that this 'glut' of natural gas is going to look like dry powder to Pickens, McClendon, et al who want to build hydrogen car infrastructure and export LNG when this is one of our last best cheap ancient assets.

Lets get back to hurricane specifics, though clearly this is important.

Why would they oversell their production? They usually would only hedge the amount mandated by corporate proxy or required by banks, which is usually much less than 100%. So if gas prices shoot higher, they will lose X in their hedges and make 2 or 3 times X in the rest of their production. Now the speculators, thats a different story. Could be Amaranth in reverse. And the price deck, for reasons of net energy and water restrictions is going to relentlessly climb higher....

Two points. 1. I don't think it's that simple. If these NG producers are hedging then they have to provide more margin until delivery as the NG price goes higher. Sure, the losses on their hedges are made up for in their ability to deliver but carrying that increased margin can "carry" them out of the game. 2. I don't think memmel meant "too" many as in more than their production. I think he meant "too" many as in more than they can carry the margin on. If these unconventional NG producers are hedging, and you have stated previously that it was one of your concerns that they are being forced to by their banks (because it was pushing the price down therefore discouraging new production), then their hedging will cause much stress and probably some bankruptcies.

Don

P.S. Thanks for all your great key posts and comments. I have learned alot from them.

I don't think these companies have long term viability. I think that they have a honeymoon period for about five years or so as they are able to show impressive production gains but then the decline rates from existing wells are a killer.

At some point its impossible for them to increase production and very expensive just to standstill and for a lot of these companies this time is effectively now.

So I'm very negative on these companies and I actually don't think that shale plays have long term potential as significant sources of NG. You get about 5 years or so of great flows during ramp up but no way you can keep up the drilling rate to even standstill much less increase after this.

Lets see what happens over the next two years with the shale plays. I think they are going to flame out big time. So my comment was made assuming these companies would be facing rapidly falling production in the near future.

You almost cannot get a more demanding situation with huge decline rates in the first few years a well is drilling. It simply does not look viable after the first expansion phase you start hitting a wall.

If you have 100 wells in decline in two years you need to drill 110 for decent growth.
If you have 1000 wells in decline in two you need to drill 1100 wells for decent growth. The point is it rapidly falls apart after about five years or so given the decline profile of the Shale NG wells.

You effectively have to have one drill rig for every five wells drilled after five years simply to stay even.

Lets say you can drill six wells a year and lets say production is 50% in one year.
Year two you need to drill three wells to make up for year 1 declines.
Year three you need to drill say 9 wells or add another rig.

So basically every three years you have to double your rig count to stay even.
To grow you need to go higher.

In 5-7 years these companies are in trouble since they need continuous financing just to keep production from falling much less to increase it. In the real world they will be reporting falling production every year and higher production costs so the profit margins are going down every single year after say year five.

New shale operators without the legacy well overhead are far more profitable and thus can out bid for rigs.

So I just see these shale players as one shot wonders once the real situation is obvious then the game is over.

Now consider selling futures if your production may drop by 20-50% in a few years and what precentage of production that is ?

Maybe your right maybe I'm wrong time will certainly tell on this one.
I assure you I'll be willing to rub it in if I'm right and fully expect the same treatment from you :)

So I'm very negative on these companies and I actually don't think that shale plays have long term potential as significant sources of NG. You get about 5 years or so of great flows during ramp up but no way you can keep up the drilling rate to even standstill much less increase after this.

On this we agree. But 5-7 years is a long time. Market (and energy policy) focus is much shorter.

And no rubbing it in please. Neither of us has the data to be 100% correct. We are just trying to push the discussion into territory that smarter people than us can say 'a-ha, I see!' and do something about it.

And thus, Memmel and Nate, we see that the market can only focus on one or two variables at a time. And, that this focus most often takes place within a particular mood. A mood that is itself transitory.

The current variable the market is obsessed with is increased US production of NG. The particular mood in which this obsession takes place is defined by worry about the economy, and demand.

Increased production of NG. Period. That's all that matters right now. Decreased imports from LNG, and by pipeline from Canada and MX, doesn't matter. Increased exports to Canada, MX, and via LNG (Alaska) don't matter. Declining EROEI or even the the higher cost of Marginal MCF from shale plays doesn't matter. The higher spike and more rapid flame-out of production from shale wells doesn't matter. The fact that many of these shale plays don't even have pipelines yet, doesn't matter. Nor, increased local concern in new shale plays about the water run-off. I could go on. None of it matters. The market is convinced of an NG glut coming on right now, and straight into 2009.

In the first half of 2008, however, alot of those above issues did matter. But the mood of the market was very different. The ability of US producers to raise NG production was first flashed in October-December of 2007. Here is what mattered: the market was very aware that new shale NG would come on but only at a higher price. The market was also aware that exports to MX and Canada were ramping, and that global NG was re-pricing. Now, those things don't matter. It's because of mood.

The NG price also looks rather binary to me. NG seems to be unable to decide whether to stay below 8.50/MMbtu--which is a level where imo coal parity and marginal costs converge--or, or swing way above that level once again. (My gut in combination with my ongoing analysis tells me that both NG and Oil are very, very close to the cost of marginal supply at these oft-repeated levels of 8.00 and 115.00. These levels are very close to my marginal cost levels. I use 8.50 for NG and 90.00 for oil, though GS uses 105.00 for oil. I have wondered if I am too low.)

As WT has pointed out, NG is so hypersensitive owing to its structural marriage to storage in gaseous form, that swings of 2.00% in supply are hugely magnified in price. For example, if only one hurricane hits us and slows NG production for 2-3 weeks starting now, then we immediately move straight in to a brand new case where storage by 31 October comes in below the average--and then you basically re-price the entire strip through May of 2009. Whoosh.

Nothing matters, of course, until it matters. (This goes to Nate's work in cognition, etc).

I agree 100% and I've posted enough on the problems with unconventional and damage in the gulf. The point is as you point out a 2% change is huge. Extensive damage in the gulf coupled with if I'm right about future shale NG production puts the US in an almost permanent shortage or strain position from here on out until demand drops significantly.

It will not be like Katrina and basically even if we get lucky this year when we finally do get another bad year in the Gulf US gas production will effectively never recover.

Again with all things I could readily be wrong and time will tell but these storms may have a far longer impact on us then most people think putting us into a sort of perpetual shortage condition or strained situation with NG.

Well over 50 operators have drilled or permitted in the Barnett Shale trend of north Texas' Fort Worth basin since the beginning of 2004, according to Dr. Michael Wayne of Rig Data. As a relatively new unconventional natural gas play, the Barnett has gained national attention, due to the commercial success of operators over the last six years. Over 75% of the producing wells in the Barnett have been drilled since 2000. In 2002, according to the Energy Information Administration, Newark East Field produced 202 Bcf. This was more than any other field in Texas, making it the seventh largest gas producer in the US. The "Core" area of the trend is in Wise/Denton and northern Tarrant Counties of Texas, Fig. 1.

We will see and no rubbing it in. But given the high depletion rates even the fact that a lot of the wells went in in 2004-Present we could still see the net production from the Barnett shale start to decline any day now.

I've been trying to figure it out to some extent and the steady state production is pretty much the same as the number of rigs utilized so if 100 rigs are drilling then you have about 100 wells in peak production on average every year. So if you drilled out 1000 wells during the expansion period say over 2-3 years then production should fall off in about 2 years to the 100 well level which would be about a 90% reduction vs the ramp up phase or honeymoon period.

I pretty sure I'm roughly correct on this and even if I'm pessimistic it looks reasonable that after the initial goldrush that production longer term from the various shale plays will probably be at least 75% of the production during the honeymoon period. I thus don't expect haynesville to actually result in any net addition since any rig drilling in the Haynesville play is not drilling in existing shale plays.

I actually think we have already started having serious problems with production from the Barnett shale and its probably happening so fast that we don't even have good stats on it yet.

And again to keep it on topic this is the NG situation today so we are not in the same position as we where post Katrina. Katrina hit in 2005 basically right around when the honeymoon period for shale plays started taking off.

So regardless of how many shale plays we have given we simply can produce rigs fast enough if we get significant hurricane damage now it will be with static or even rapidly falling production from the non-conventional shale plays not rising production.

The dramatic and record-breaking increase in the non-commercial short (large speculators) position in NG has been accompanied by an equally dramatic mirror image decrease in the commercial short position; the commercial short interest has not been this low since July 2005. I believe it's almost certain that a large part of this is the reclassification of some large commercials to large non-commercials, as explained by the CFTC special announcement of July 18, 2008. This makes the normally bullish interpretation of the "ATH short position in NG" much more uncertain. The commercial long position is actually low compared to the past two years, which is bearish (although it has been increasing modestly for a month). The total open interest also has been dropping for several weeks, so the aggregate short position is not at a record, and not particulary bullish IMO. Of course, technically NG is probably oversold.

So your position is that the CFTC is reclassifying commercial hedging by producers of natural gas and taking them out of the commercial category, and dumping them into the non-commercial category. You are saying that the growing non-commercial position in NG, hitting new all time highs each week, is actually commercial producers/sellers of NG (for example: CHK, XTO, BP, COP, EOG, and so on) and that when we look at the non-commercial category now, we are in fact seeing commercial selling (the short position).

(I recognize you are making other observations and conjectures as well, but, I just wanted to try and tackle the reclassification issue. FWIW, I too find it a bit odd that at a time when we know many NG producers have been hedging (selling) that the commercial category is net long. However, some hedging has taken place off market, like these Volume Production agreements that CHK has done. We forget that large commercials can create their own contracts. 5 year leaps on baskets of stocks, etc. Heck, Warren Buffet sold a huge Put on the SPX giving someone the right to put the index back to him at levels lower than here, in around 10 years. And so on).

I don't claim to understand CFTC's methadology btw. In Oil, they reclassified Vitol to the non-commercial category, which I think is odd because Vitol was simply a trader that traded on behalf of commercials.

If the CFTC is going to reclassify selling of Oil and NG along the curve by OXY and APA into the non-commercial category, because, say, they used Morgan Stanley to put the trade on for them, then, I can with confidence throw up my hands and say the COT reports are now meaningless.

There is a diary on DailyKos by a professional meteorologist and he suggested that the path produced by the model referenced here be disregarded as it is an outlier. No matter what this is going to be an ugly storm, but I'm curious as to what TOD weather people think about the reasoning behind this:

So, all in all, the models continue to show some disagreement, but have converged a bit. They have also shifted slightly west and slightly earlier (both changes for the same reason... a stronger "ridge" will force Gustav further west, and provide stronger steering for a faster motion to the coast). The one outlier is the HWRF... while the consensus is slightly faster, the HWRF now stalls Gustav. So, I'd disregard that. My previously discussed landfall is still pretty close to the center of this range of predictions (maybe very slightly on the east side now), so I see no reason to change it... Morgan City, LA in the wee hours Tue AM.

We have a couple of computer programs that monitor the objective track models, and HWRF is currently the favored model since it has been doing the best job of forecasting this storm. GFDL and LBAR have also stalled the storm at various times over the last day, so it's not just one model doing it. I personally think the GFDL scenario is more realistic, but we developed the BOT (Best Objective Track) Run Selector because, well, it's objective, and over time does a better job than human track pickers.

You know the most details about any potential problems of your NOLA evac. because you have been there, done that before-->ultimately, it's your call. But I will personally be pissed off at you if you get trapped or hurt, and I think most other TODers are fervently hoping that you will decide to make your move early. Take care, friend!

An early evac precludes grabbing a few people that are trapped and want to get out at the last minute. I am setting up plans to not "evacuate an empty seat".

Many of the stubborn ones are amiable to the concept of a half day out and back "just in case". Calling around, setting up feelers right now.

I am encouraging those without cars to take other rides out earlier, but I am a "last chance" in case things fall through.

I have done this before. I have a pretty good feel of wind speed vs. closing roads (and the radios give warnings as roads shut down one by one, when the first one shuts down you had better be cruising towards one of the "less exposed" highways !).

With Katrina I did not play the "last hour" plan (out 6 to 7 hours before roads closed), but I still got 3 stranded tourists out after all the car-less locals I knew got out.

Best Hopes for not evacuating 5 minutes after the last road out closes,

Only other news (other than slight track move to West) is that they are sweeping the shoulders of the Interstates to remove debris (and prevent flat tires when the shoulders turn into anotehr traffic lane).

Experience from Katrina is that this works in day-light hours but not at night.

Tentative contra-flow starts at 4 AM Sunday.

The route I took out during Katrina is not going to be available, Mississippi is going to take both sides of I-10 East (Republican influence no doubt, a -20% reduction in road capacity out of New Orleans).

DATA FROM AN AIR FORCE RECONNAISSANCE AIRCRAFT INDICATE THAT
GUSTAV CONTINUES TO STRENGTHEN AND NOW HAS MAXIMUM WINDS NEAR 100
MPH...155 KM/HR WITH HIGHER GUSTS. THIS MAKES GUSTAV A CATEGORY TWO
HURRICANE ON THE SAFFIR-SIMPSON HURRICANE SCALE.

Hurricanes Ivan, Katrina, and Rita had reached category 5 status before making landfall. Rita reached speeds of 180 mph, and Katrina reached speeds of 175 mph. Warm water in the GOM was thought to be a cause of the intensity of these storms.

A Category 3 hurricane has winds of 111-130 mph. One may need to keep watching as the hurricane is expected to strengthen north of Cuba. As the wind speed increases the damage potential increases exponentially.

using oil from the SPR seems like it should be an absolute last resort. oil will presumably cost much more as time goes on, so refilling the SPR (which becomes less and less realistic) will only become more costly as time goes on.

are we at the point of last resort here? or rather, should the last resort really be employed now, just to try to keep the status quo trudging along? shouldn't we be saving that to use only to aid the transition away from oil, or in the most severe supply shortages? the fact that we're doing that now is very disheartening, and is seems to be just another clue that the government is either ignorant, incompetent, or malicious. ...or systemically incapable of doing any better?

DATA FROM AN AIR FORCE RECONNAISSANCE AIRCRAFT INDICATE THAT
GUSTAV CONTINUES TO RAPIDLY STRENGTHEN AND NOW HAS MAXIMUM WINDS
NEAR 115 MPH...185 KM/HR WITH HIGHER GUSTS. THIS MAKES GUSTAV A
DANGEROUS CATEGORY THREE HURRICANE ON THE SAFFIR-SIMPSON HURRICANE
SCALE...THE SECOND MAJOR HURRICANE OF THE 2008 ATLANTIC HURRICANE
SEASON

The rate its going it might make a cat 4 before hitting Cuba.

As far as I can see it jumped from a 1 to a 3 in 6 hours? Thats frighteningly quick.

Edit: Latest recon data has storm just bordering on Cat 4 and pretty much heading straight for Havana (within 30 miles on the west side). Currently the storm is tracking noticeably to the east of last forecast track but this could just be a wobble. Time will tell.

using oil from the SPR seems like it should be an absolute last resort. oil will presumably cost much more as time goes on, so refilling the SPR (which becomes less and less realistic) will only become more costly as time goes on.

Gustav should make landfall on Tuesday as a major category 3 hurricane somewhere in central Louisiana. The past two days of Gustav's progression and consistent model runs have helped to increase my confidence in this forecast, and I'm tempted to narrow the likely landfall area slightly to Lake Charles to Houma. The worst effects will be felt to the east of the landfall location.

For those in New Orleans - remember, the right front quadrant of storm is the most intense (think coastal Mississippi in Katrina), and the combination of the landfall location (about 50 mi to the west) and the angle of approach (from the SE) is nearing a worst-case scenario for the New Orleans area. Storm surge could be in excess of 15-20 feet. Meteorologically, this storm could (could!) be worse than Katrina for New Orleans.

He also warns that like Katrina, this is going to be a very large storm, and people far from ground zero should still be worried.

IIRC the levees at NO are only rated for a cat 3 hurricane. Accuweather are expecting Gustav to increase to a cat 4 over the Gulf. Sounds like there should be a mandatory evacuation of NO or parts of it, due to the significant threat that Gustav poses. Or is it too late?

We had slightly over 40 hours warning for Katrina, more than that ATM and many have already evacutated.

My concern is that the eye is disrupted over Cuba, the blocking high moves south sooner than anticipated (Hanna helps) and the path goes towards Houston and Galveston and they have 40 hours warning. A horrific mess !

Any likely effect on crops, agriculture, etc. from Gustav and Hannah? Florida fruit presumably, Louisiana? As the storms dissipate over land presumably they will carry rain and adverse weather far inland possibly causing flooding, etc. Any major crops that may be affected?

As it isn't just oil and gas supplies that are tight, I was just wondering whether food production may also be further stressed.

When i was growing up here in southern MI we considered a storm hitting dead on the LA/TX border to be ideal, when they do that the remnant moves up the Mississippi valley as a huge wet system bringing summer rains to help get the crops watered without irrigation.

We have not seen many of those in 2006 or 2007, and though it looks like Gustave might do it the crops are pretty much done around here now due to lack of substantial penetrating rain for about 6 weeks. Looks like we might get torrential downpours from Gustavs remnant just in time to get the field corn wet and delay harvest. A couple weeks delay right now would put us into the fall rainy season when it gets more difficult to harvest for a month from mid Sep to mid Oct.

On the physical front: obviously, high inland winds and pounding rains from a major 'cane can flatten crops, and excessive soil saturation and/or floods can rot the plant and/or preclude timely harvest, plus delay required soil-prep for the next growing cycle. Heavy rains can also flush the mulches and nutrients from the topsoil or beyond the reach of subsoil crop roots.

On the biological front: long sustained winds and splashing rains are the best friends for rapid dispersal of plant mites, fungi, rust, and other infectious agents to reduce/decimate harvest yields:

Non-Cereals
Dry Edible Beans / Soybeans
Canola (Rapeseed) and Mustard / Sunflower / Flax
Potatoes / Sugarbeet
------------------------------
Please read the 'Survival and Spread' for each of the major plant diseases for more details. Again, if the soil is too saturated: the farmer maybe prevented from timely spray application to try and halt the infectious advance through his fields.

Hi Bob,
I wonder if you would be able to throw any light on the likely effects on the sea from this hurricane washing fertiliser down into it at this time of the year?
Presumably Katrina provided good data on this.
Thanks.

Contaminants from runoff and hydrocarbon spills are expected to cause fish kills and losses of crustacean and molluscan species in nearshore
areas. Reported contaminant sources include seven major oil spills from refineries or tank farms that total 6.7 million gallons,25 releases from 25 major sewage treatment centers and many smaller ones, and runoff from countless fuel storage tanks and household and
industrial chemical stores (antifreeze, bleach, acids, alcohols, etc.).26 In addition, increased nutrients in storm runoff have the potential to stimulate harmful algal blooms in offshore waters.

The storm surge from Hurricane Katrina scoured the bottom of bays and river systems, suspending large amounts of organic anoxic sediments;
the resulting drop in dissolved oxygen caused massive fish kills.27
---------------------------------------

The current east most path is close to the path required to test the Mississippi River levees, designed for spring floods. (No improvment since Katrina).

Today, the river is 2' or 3' (I have not checked gauge on-line), normal spring is 17' and flood is 21' (from memory). The hydraulics are complex but flooding is possible in a worst case. Best decision is to blow one levee on a "low value" area (name politician who represents a "low value area" that can be sacrificed). Default is likely to be the Harvey Canal on the West Bank,

Only a few % of hurricanes will take a path that raises this possibility. Gustav looks close.

What is the worst path this storm could take for our oil Ind In your humble opinion ???
Anybody Anybody. It should be better for LS if GUS hits 100 miles east of NO. Your thoughts please. I'm thinking in that area its less populated.

I would have thought that if it re-entered at the Potomac and moved on up to Pennsylvania Ave and sort of watered out there for a few days it would do a world of good for the Decider and all those oil industry lobbyists and Exxon funded AGW deniers.

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